Know your rights: 3 tips for dealing with debt collectors

Editor’s note: This is a recurring post, regularly updated with new information.

Forgetting about paying off a bill is one thing, but prolonged missed payments can turn into a serious burden. However, if you find yourself in a difficult financial situation, know that predatory practices to collect that payment are illegal.

At TPG, we advocate for smart spending on credit cards, including paying in full to avoid interest on your balance. But it’s not always that easy.

Nearly 50% of U.S. general population households report having credit card debt, while 38% report carrying credit card balances from month to month, according to the National Foundation for Credit Counseling's 2021 Consumer Financial Literacy and Preparedness Survey. These late or missed bill payments can begin the process of credit card delinquency — and over time, could eventually lead to having to deal with debt collectors.

Related: The right way to pay your credit card bills

If you find yourself in this precarious position, what are some things that you should know? We'll walk you through it.

For more TPG news and advice delivered each morning to your inbox, sign up for our daily newsletter.

What are debt collectors?

Debt collectors are collection agencies, debt buyers and lawyers who regularly collect debts from individuals like you as part of their overall business. There are also dedicated companies that buy past-due debts from creditors and then attempt to collect them.

The assumption that debt collectors often use questionable — and sometimes even illegal — tactics isn’t wrong. The Consumer Financial Protection Bureau, the agency responsible for financial consumer complaints, handled more than 300,000 debt collection grievances in 2020.

Debt collection is among the most prevalent and notorious topics of consumer objections about financial products or services, according to the CFPB.

Related: A guide to credit card debt

Why might you have to deal with debt collectors?

There are a couple of possibilities here. The first is that a credit card issuer (or another other creditor) may use its in-house debt collectors or even hire an external agency to collect a past-due debt that you owe. Debts sent to collections can include things such as:

• Credit card balances.
• Car loans.
• Medical and hospital bills.
• Student loans.
• Mortgage payments.

Another potential scenario is when a debt collection agency purchases a past-due debt from a creditor at a discount. If that company can then receive the full payment from you, they can earn a tidy profit.

Clearly, especially in the latter case, these collectors have a financial incentive to pursue payment — and sometimes, as a result, act a discriminatory or questionable manner.

Related: From debt to over 20 credit cards: The story of The Points Guy’s personal finance journey

Tips on how to deal with debt collectors

Know your rights as an individual.

If you owe on a debt, it should be paid back. However, you should not have to tolerate practices that are meant to intimidate you into paying immediately. In 1977, Congress passed the Fair Debt Collection Practices Act to help you know when a debt collector has crossed the line.

These collectors can’t harass you, lie to you or manipulate you in any way to get the debt resolved. The Federal Trade Commission has a full list of what debt collectors can and can’t do when it comes to collections. Know that abusive, unfair or deceptive tactics are off-limits.

You can report any problems you have with a debt collector to your state attorney general’s office, the Federal Trade Commission and the Consumer Financial Protection Bureau.

Stay organized and get everything in writing

Make sure you know exactly what you owe, and make sure that is clear at the onset from the creditor, not the debt collector.

Don’t do anything once you get an initial call from a debt collector, either. A collector also has to send you a written “validation notice” within five days of first contacting you. The notice has to say how much money you owe, the name of the creditor to which you owe it and what to do if you don’t think it’s your debt.

If you don’t think you owe any money, you should send the debt collector a letter asking for verification of the debt. If you send that letter within 30 days of getting the validation notice, the collector has to send you written verification of the debt — for instance, a copy of a bill that you supposedly owe — before it can start trying to collect the debt again.

Consider other options to repay

If at all possible, try to work out an arrangement with a creditor before a bill is sent over to collections.

Another option if you’re having difficulty with collections is to seek out a nonprofit credit counseling agency. The U.S Department of Justice has compiled this list of approved credit counseling agencies. An agency may be able to help work something out with your creditors in terms of a repayment plan. If it looks unlikely you’ll be able to pay back your debts, or if debt collectors are hounding you, you could try and request a free consultation with an attorney that specializes in bankruptcy.

Even if you decide not to file for bankruptcy, the attorney can tell you what a creditor is allowed to do in your circumstances, and what they can and can’t collect on.

Related: TPG’s 10 commandments of credit card rewards

Bottom line

In an ideal world, by making all your monthly payments, you wouldn’t ever have to interact with debt collectors. However, if it’s already too late for that, it’s important to know your rights and how to spot predatory practices. Hopefully, with these tips, you can pay off what you owe — or at the very least get a better understanding of how to deal with debt collectors.

If you eventually become ready to apply for financial products again, take a look at our best secured cards and best beginner cards. Down the line, managing credit cards effectively can help you establish a better credit score, protect you from fraud and provide you with the opportunity to earn valuable rewards.

Additional reporting by Stella Shon and Benét J. Wilson.